Question

Why do banks push users with credit limits to "no-limit" revolving line accounts? What do banks get?

I have a standard credit card with a preset credit limit that I'm satisfied. Lately, my bank has been offering to "upgrade" me to a card with a "no spending limit" revolving line of credit* as a "reward" to "thank" me for my business. I'm fairly certain I'd rather have a credit limit reported, and not even points will get me to willingly change. Why is the bank doing this? What do they get out of it?

* Their offer says: "As a result of this upgrade, your account will have a revolving line, rather than a pre-set spending limit. This does not mean that all transactions will be approved. We will consider transactions for approval on an individual basis, including transactions inexcess of the revolving line."

All Responses

I have been reading about this trend and it is bad for consumers because it can lower their credit scores. The credit bureaus have to make adjustments to their models because utilization may appear close to be 100% when credit limit is reported as high balance.

The banks are doing this because they have to pay insurance based on exposure to loss. A higher credit limit means you could theoretically run up your card to the limit one month and declare bankruptcy. They actually expect card holders to default 50% of the time for individuals with a credit score of 600.

I recently was approved for a Citi diamond preferred card with a starting credit limit of $2000 for the same reason. I'm not sure what effect that will have on my score as I get close to maxing it out before asking for a CLI. My overall utilization will stay below 10% at $2000. There is an over limit fee of $39 so Citi is using a hard limit system.

I think you are smart staying with a card that has an over limit fee until the credit bureaus standardize their models.

If your NPSL card is being taken into account for utilization, then as with any credit card, you'll want to stay well below your credit limit or high balance. If your high balance is low, you can cope by making a large purchase to increase it, paying off the balance, and then keeping purchases well below the new high balance. If your NPSL card isn't factoring into your utilization, then that might be the card you want to use for large purchases.

Banks do what they want at times...

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It is an unlikely event that a bank would want to push you past your 30% util. ratio. In some situations I am sure there is a banker whos life mission is to have some sort of power that simply is not attainable. Either way...I personally had this trouble with Bank Of America had me on a no limit cash rewards card. Its all written in the agreement. Just very hard for a person whos not exposed to contractul laws to understand the legal jargon. SO to answer your Question...

No, do not accept it with those terms. When this was my situation, I did get the card because I didnt think it was a bad thing. I moved about 3k a month on it for three months and then noticed they were only reporting the max I used, and my percentage rate was all over the place. I used 10k on 3 large purchases. Cars actually. I bought three cars on my credit card. I reconditioned them to gain more value back. Sold them and paid the balance down in three large payments within 2 months time. So my new reported limit was 10k as being maxed used. I later learned you can call and ask them to report it, or you can have the limit requested by a reporting agency. All the options are crap, and alot of work. Ditch the thought of the card, youd be better off opening a new card that does raise your available credit.

If there no limit on the report. Flexible limit spending card. All this means is that you have a limit, but lets say youve got a limit of 5k. you needed to spend 6k now your card will be approved or not approved by your soft inquiry at the time of purchase. So if your approved, very probable. Then you must pay the balance thats over your limit in full. Then if you cannot well, the setup....Raise your APRS....its all a money game.

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